We are often asked, “What is the difference between a merchant cash advance and traditional finance?” As a long-term partner, we want you to understand your options and feel comfortable that a merchant cash advance is the absolute best solution for your business. Having provided millions of Rands in working capital to thousands of retail businesses, we have a thorough knowledge of the South African “Lendscape” understanding the numerous funding options available to local retail SMEs:
A Merchant Cash Advance
Let’s face it – being in business is an unpredictable phenomenon. So having a funding partner that considers these variables is an absolute game-changer. We are in the business of providing businesses with short-term funding solutions. In other words it is a working capital cash injection that can be paid back in line with your turnover and often in less than 1 year. A cash advance is an unsecured loan that requires the Directors to sign personal surety, but no assets need to be pledged. Further to this, the use of funds is not prescribed. With our product the funding has a fixed cost that will not change over the repayment period, this means that there is no interest rate and repayments are flexible. Further to this the application is extremely fast and funding can be granted in less than 48 hours.
You’ve probably had a relationship with the Bank ever since you were a little kid who stashed that first R20 note; to be spent (one day) on something grand! Perhaps there still exists a strong idea that banks are the safest conduit for all money matters. And while this may make sense in certain scenarios, these types of applications have a lot riding on them. Bank loans require strong credit records, often need collateral and come with a significant amount of paperwork. Before extending the cash, your bank will also need to know what you want to use the loan for. Bank loans can service a number of industries while the merchant cash advance specialises in funding for the retail industry. Banks can also offer long-term secured loans. Loans attract a fixed interest rate and are paid off over a fixed term.
Access Bonds are like getting a puppy – quite the commitment. This type of long-term business loan should be thought about in decades. They are for very large purchases like buying a new property for a store location. The Access Bond is a revolving facility that then gets added to your 20-year term payments. Bonds have steady repayments that usually change with the changing interest rate. The rates from your bank (on your initial bond) may alter as a result of these changes in the Access Bond. Various market forces, such as inflation, also influence interest rates on these types of loans.
Secured Business Loans
A secured business loan is a “Give-to-Get” alternative, requiring some form of collateral in exchange for a lump sum of cash. This could be anything from another property, to a stake in your business or valuable equipment. This is so that the lender can repossess the item of value in the event that you default on your payments. Because of this, some secured loans can offer more competitive rates than other types of loan facilities. It is therefore crucial that business owners exploring this option, carefully forecast business turnover accurately to ensure there will be consistent turnover across the loan term to mitigate any risk.
Credit Card Facility
Sometimes you might favour plastic over paper to cover your business’ day-to-day purchases. Credit cards incur monthly or annual fees and interest rates, which means the lower the spend, the better the long-term costs and ultimately the business’ cash flow. This is a good option for start up businesses that haven’t built up a credit history as yet. Businesses that choose this option should ensure they make payments on time and pay more than the minimum payment each month to ensure that interest doesn’t build up unnecessarily.
Another option is working with what you already have: Namely a current account with an existing (or potential) overdraft facility. An overdraft provides a flexible borrowing option through your bank’s current account – up to a certain limit. You may find your bank automatically offers you an overdraft; alternatively you may have to request this facility. An ‘authorized overdraft’ is the set limit agreed with your bank, however, you will be charged on the amounts borrowed. The rate you pay depends on your bank and the type of account you have. This could be interest and/or a monthly fee, so make sure you read the fine print. Further to this, the bank can decide (at any point) to amend the amount and terms of your facility. Plus if you continually max out your overdraft you may also find it hard to get credit elsewhere.
Want to know more? Contact us for more insights on how we can help fund your next venture